How to write off thousands in interest costs
Tax time is here and in full swing, and if you’re like the average consumer, you likely paid thousands in interest and other charges due to high debts. Now there is a way to consolidate your debts into one low interest monthly payment and still be able to deduct the interest.
Home equity lines of credit (HELOC) have become very popular over the last decade thanks to the real estate boom. A HELOC is a line of credit against the amount of value you own in your own home. Thankfully, the government sees this just like a mortgage and will allow you to deduct your interest expense on your tax return.
A home equity line of credit works just like a credit card, although this form of payment usually comes with checks rather than plastic. A HELOC can be used to pay for almost anything your credit line will allow. Many people have used them to improve their homes, add a pool, take vacations or even to buy groceries and pay monthly bills. A HELOC provides the flexibility of a credit card with the low rates of a home equity loan.
How it works
A home equity line of credit is backed with the equity in your own home. For homeowners who have been in their home for a long time, a high credit line HELOC should be easy to obtain. Generally you can borrow up to 80% of the equity in your home.
Unlike a home equity loan, a line of credit can be used whenever you want, for whatever you want. Most home equity loans are only for even dollar amounts and come with high closing costs and fees and cannot be changed or used at the borrowers convenience. With the simple stroke of a pen, a borrower can fill out a check to pay for virtually anything which will then be charged against the HELOC account.
HELOCs usually have much lower interest than credit cards and have become popular for eliminating credit card debt. Many consolidation programs tout the easy credit lying in your own home as a way to pay off credit card debt in small monthly payments. Unlike HELOC interest, credit card interest is not tax deductible.
Anyone with any equity in their home should apply for a HELOC just to have in case of emergency, debt consolidation or future use. To consolidate debts, all a borrower has to do is write out a check for the amount of the debt and send it to their creditor. The credit card debt will be removed an added to the HELOC debt.
Interest deduction
Any debt can be put into a HELOC for interest deduction. Credit card debt and personal loan debt is the best for consolidation because it is usually high interest and not tax deductible. HELOCs have rates that are usually 8-10% lower than most credit cards, making them a bargain right from the start. With a HELOC rate of 8%, the effective rate is dropped to 6% when you consider the tax breaks. Anyone with high balances and high interest accounts should apply for a HELOC for instant debt consolidation.
